Jim de Bree | Why Individual Mandate Matters on Health Care

One of the most misunderstood provisions of the Affordable Care Act is the so-called “individual mandate,” which requires that most Americans choose between purchasing a certain level of health care insurance or paying a tax. 

The reasoning behind the mandate is that, if everyone participates in the insurance risk pools, long-term overall costs will decrease. According to actuary.org, “A health insurance risk pool is a group of individuals whose medical costs are combined to calculate premiums.” Pooling these risks allows for the lower level of claims by healthy people to offset the higher costs of sick people.

In countries that do not have a government-run single-payer system, the entire population is placed into a single risk pool or into regional pools enabling the insurer to negotiate better pricing from providers. In order to coerce healthy people to participate, those countries impose a tax on those who don’t partake. For example, Switzerland imposes a tax of 130% to 150% of insurance premium costs on those who do not have insurance.

A similar regime was imposed by the Affordable Care Act. This is one of the most controversial aspects of the act. Although legal scholars have argued about the provision’s constitutionality, the Supreme Court upheld the mandate in a controversial decision.

A provision in the Tax Cuts and Jobs Act reduced the tax for failure to purchase insurance to zero. This effectively removed the requirement to purchase health insurance.

While the legal positions are complex, opponents’ main complaint is that people should not be forced to purchase insurance if they don’t want to. Unfortunately, this position does not consider the collateral consequences of people who are uninsured or underinsured. 

We force people to purchase auto insurance because we don’t want an uninsured motorist to cause damage he cannot pay for. Similar principles apply to health care.

The people who are most likely to drop their health insurance coverage are those who are healthy or who do not expect to incur significant medical costs. When they drop their insurance and are taken out of the risk pools, the premiums for the remainder of the population increase because insurers will have to charge remaining participants more to cover higher average claims costs. Actuaries say that, without an individual mandate, insurance companies cannot cover pre-existing conditions unless premiums are heavily subsidized. If premiums are not subsidized, many participants will be forced out of coverage because they cannot afford it.

When the uninsured or underinsured require care, they frequently are unable to pay for it. According to the Kaiser Family Foundation, an average non-elderly uninsured individual receives about $1,700 of uncompensated care annually. 

Consequently, health care providers shift the costs of uncompensated care to those with insurance. Although a portion of these costs are subsidized by the government, the unsubsidized portion drives up the cost of insurance. Economically, this is similar to having to pay for the damage done by an uninsured motorist. 

Decreasing the size of the risk pools further increases costs by diminishing the insurance companies’ purchasing power.

The argument that repealing the mandate affords greater choice and that anyone can buy insurance if they desire is a red herring. A sick person’s cost of obtaining health insurance increases with the repeal of the individual mandate. Many Americans, particularly chronically sick people, can barely afford insurance. Repealing the individual mandate means those individuals will no longer be able to afford health insurance.

People who choose to avoid purchasing health-care coverage or who purchase cheap policies that underinsure them are effectively asking others to pay for their eventual health-care costs. This is a bargain for them, so naturally they support eliminating the individual mandate.

Another problem with affording greater choice is that people are generally incapable of making informed decisions about health-care coverage. Most people do not fully understand the implications of their decisions and are unable to reasonably determine whether the future benefits obtained are worth the cost.

According to the Brookings Institution, several psychological factors cause this phenomenon. People place a greater emphasis on the current cost of obtaining coverage than on the future costs of getting sick or injured. It is easy to underestimate the future risks of getting ill. Finally, there are inaccurate perceptions of affordability.

If the individual mandate is eliminated, then the only way to prevent the shifting of costs is to deny treatment to those without insurance. We already see that with cancer treatment. The best drugs are the most costly, but only those with good insurance have access to them.

Polls show that most Americans do not want a government-sponsored single-payer health-care system. However, the problems that will result from eliminating the individual mandate may change that view because insurance will become unaffordable for many of those who need it most.

Jim de Bree is a Valencia resident.

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